Lease: Building on Unfree Ground

Lease: Building on Unfree Ground

What does building on free ground mean?

A building on a free foundation is a structure erected on land owned by someone other than the owner of the building. This is common in situations where someone has the right to use the land through a lease agreement, but does not own the land itself. Such buildings are classified as movable property and cannot be mortgaged, but must be pledged if they are to be mortgaged.

Legal aspects

Buildings on free grounds are covered by the rules in the Land Code (JB). An important legal concept is that the building is not counted as immovable property, which means that in the case of a sale no stamp duty is payable as in the case of real estate sales.

Lease agreement

In order to erect a building on a vacant site, a lease agreement is required between the owner of the building and the owner of the land. Such an agreement regulates, among other things, the lease fee and how long the lease is valid. The agreement must be in writing and cover a certain period of time, normally at least five years or for the lessee's lifetime.

Protection of possession and rights

Lessors have strong tenure protection, which means they have the right to an extension of the lease upon its expiry. This protection aims to give the tenant security and predictability in their accommodation.

Economic aspects

Since buildings on free grounds are movable property, there are certain financial limitations. A significant disadvantage is that these buildings cannot be mortgaged in the same way as real property. In order to mortgage such a building, a security transfer is required, which means that the building is transferred as security for the loan, but this is often more complicated than mortgaging real property.

Common mistakes

• Lack of written agreement: An oral agreement can lead to legal disputes if the terms of the lease are not clearly regulated.
• Unclear terms: The agreement should clearly specify all terms, including the size of the lease fee and terms of payment.
• Neglected registration: It is important to register the building with the Tax Agency to ensure that all formal requirements are met and that legal problems are avoided.

Examples of legal disputes

In a high-profile legal case, the Supreme Court dealt with the question of the ownership of a building on unclaimed land when the ownership of the land changed hands. The court held that the building became accessory property when the same person became the owner of both the land and the building.

Summary

Buildings on vacant land are a specific category of property which means that the building stands on land owned by someone else. A lease agreement is always required to legally secure the right of use. These buildings are classified as movable property and therefore cannot be mortgaged as real property. A strong tenure protection gives tenants the right to extend the lease, but it is important that all agreements are clearly regulated in writing to avoid legal complications. Failure to follow these guidelines can lead to significant legal and financial problems